A federal judge has ruled it is plausible that four national credit-card companies improperly conspired “in lockstep” to set a deadline of Oct. 1, 2015 for requiring retailers to upgrade their technology to accept embedded chip cards for credit and debit card purchases.

In an order issued Friday (Case number C 16-01150 WHA), U.S. District Court Judge William Alsup agreed with two small Florida businesses -- B & R Supermarket and Grove Liquors — which brought the lawsuit in March.

Alsup’s ruling also allows the antitrust case against Visa, Mastercard, American Express and Discover Financial Services to move forward in federal court for the Northern District of California.

The two retailers are seeking to create a class-action case involving millions of small retailers who have been required under the Oct. 1, 2015 deadline to assume liability for fraudulent card charges if they haven’t upgraded to the more-secure chip card technology instead of magnetic-stripe cards. The retailers believe there was industry conspiracy over creation of the deadline that violates fair trade practices.

In the same ruling, the judge allowed two other retailers — Los Angeles-based gourmet food chainMonsieur Marcel and New York-based grocery story chain Fine Fare — to intervene in the case.

Significantly, the judge dismissed the role of nine major banks, including Bank of America and Wells Fargo, in any conspiracy over setting the chip card deadline, but ordered the banks to retain records pertinent to the case.

“This order concludes that plaintiffs plausibly allege an impermissible conspiracy” by Visa, Mastercard, American Express and Discover, the judge said.

“We are disappointed that the court denied our motion,” said Mastercard spokesman Seth Eisen, in an email. “As we move into the next phase of the process, we believe we have a strong case that will allow us to put this matter behind us and focus on driving our business and relationships with customers.”

American Express, Visa and Discover declined to comment on the ruling.

Lawyers for the retailers have said a class-action lawsuit could include 8 million U.S. small businesses. They would seek repayment of the cost of upgrading to chip card readers and related software, estimated at $6 billion. However, the National Retail Federation has recently estimated the total cost of the conversion in the U.S. at up to $35 billion.

Walmart and Home Depot have brought separate lawsuits over the chip card conversion, primarily related to their contention that chip credit cards rely primarily on chip-and-signature purchases instead of more secure chip-and-PIN purchases.

In the most recent ruling, Alsop said U.S. card companies deviated from chip card rollouts performed in other countries because the card companies chose a single Oct. 1, 2015, deadline to impose the liability shift, instead of rolling out different card brands at separate dates. “This order concludes that the deviation from prior rollouts points a finger at plausible suspicion and tends to show that the lock-step rollout in the U.S. flowed from conspiracy …,” Alsup wrote.

The ruling added: “When the [card] networks had implemented liability shifts in other countries, they unfolded quite differently from what later occurred in the United States. Implementation was largely staggered in other countries, meaning no common effective date. Moreover, some of the networks offered certain accommodations in other countries by reducing interchange fees, implementing gradual rollouts and providing addition time to install [chip reader] terminals.”

The ruling also notes that Visa CEO Charlie Scharf told analysts in 2014 that Visa had met “in a room” to “work together” in 2011 with other card companies, banks and select retailers to develop a plan for the chip card conversion. “A jury could find that defendants ‘got into a room’ and fixed a common penalty effective on a common date,” the judge wrote.

Alsup also said that because merchants were also in the room didn’t necessarily render the idea of a conspiracy implausible. “We would expect the giant retail chains to be involved in the planning for they would be the first to get certified,” the judge said. “Run-of-the-mill merchants, like our plaintiffs, are the ones to suffer under the liability shift.”

After the lawsuit was filed in March, Visa, Mastercard and American Express moved to streamline certifications of chip card equipment and processes and forgave chargebacks of $25 or less. A chargeback is the industry term for a fraudulent transaction that is charged back to a retailer.

This story, "Chip card lawsuit to move forward against Visa, Mastercard, others" was originally published by
Computerworld.